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Rethinking Procurement in the Post-Pandemic Era

The demand and supply shock caused by the global pandemic and the unprecedented political developments after the U.S-China trade war has revealed the weaknesses that lie in the heart of global supply chain networks. As the COVID-19 pandemic eases, it’ll leave behind an altered world.

A world that demands more flexible procurement strategies, economic nationalism, and a multi-sourced supply chain network. The procurement strategies that were being optimised for low costs now need to be reimagined for a changing world.

The impact of the pandemic in procurement

History stands witness that high-performing procurement functions have helped companies navigate through a global economic crisis before. Companies with top-quartile procurement functions recovered from the global financial crisis of 2008 three years earlier on average relative to the companies with low-performing procurement functions.

Procurement can again play a vital role in recovering from the current crisis. However, the role of procurement will need to be reimagined and transformed according to the current challenges.

We took a deeper look at the impact of the pandemic on procurement and pinpointed the most crucial procurement challenges that companies worldwide face due to the COVID-19 pandemic.

  • Supply disruptions due to regional shutdowns and trade disagreements.
  • Uncovering hidden costs present in single-source dependency.
  • Changing of market dynamics towards economic nationalism.
  • A reimagining of the workplace – a shift towards remote work.

5 key changes to expect and implement in a post-pandemic world

Over the next few years, managers should expect a broad restructuring of the supply chain infrastructure. Reimagining procurement functions according to these five fundamental changes can help businesses sustain in an altered post-pandemic world.

1. Green procurement

Owing to COVID, businesses had to focus on survival strategies while abandoning the concerns for the environment. However, the post-pandemic era meant reshifting strategies for a healthier planet.

The reemergence of firms demands sustainable initiatives by companies that result in higher cost savings alongside the betterment of the environment. Green procurement involves the selection of suppliers while analysing their environmental, social, and governance influences.

A trend of reinvestments by procurement managers in innovative and green practices can be observed as an attempt to further develop their businesses. The inevitable shift will help businesses maximize efficiency and lower labor costs which will ultimately save energy for future generations.

2. Procurement digital transformation

The digital transformation of procurement has been a point of discussion for procurement managers long before the pandemic, but the progress for digitisation was slow. However, the remote work order bought around by the pandemic sped up this process significantly.

Cloud-based procurement management software can enable effective collaboration across functions in the new normal. A recent example of Microsoft further proves this point as the company used automated procurement software to collaborate with all employees across all functions and enabled Microsoft to set up home offices for their employees following the work-from-home order issued by the company.

3. Reduced supply and the need for localized suppliers

Earlier in the pandemic, a spike in demand for consumer products coupled with supply disruptions caused a shortage of supply. The inefficiencies of the global supply chain network were revealed due to disagreement between China and the US, and the pandemic has triggered a shift towards domestic supply chains and economic nationalism.

Instead of being optimized for the lowest costs in the post-pandemic world, companies will optimize procurement functions to reduce risk by diversifying supplier-based and localised suppliers. The localised production facilities acting as indirect suppliers may lead to lower transportation costs. However, the shift towards regional and local suppliers presents a complex challenge as supply chain networks of all major companies are globalised and depend on the manufacturing and procurement of critical components or entire products in Asian countries.

The shift towards localisation of procurement entails a high risk of its own, but it is a risk worth taking in an altered post-pandemic world. However, managers shouldn’t back away from globalisation entirely. Depending entirely on localised suppliers would mean you’re not taking advantage of better options available in other countries. The opportunities that your competitors will gladly capitalise on.

We recommend managers diversify their supplier base by ensuring multi-level sourcing that includes global and localised suppliers. Moreover, firms can open their own production units and warehouses in various locations that offer low storage or transportation costs based upon the model of the business.

4. Get More Done With Less (Improving Operational Efficiency to Cut Costs)

Even with significant market dynamics shifting, companies lack processes and capabilities to gain enterprise-wide savings. Procurement remains fragmented in various business units making it hard to cut costs.

To overcome challenges, indirect procurement managers would need to utilize new technologies and practices for category management. A need for a new vision for indirect procurement, revolving around a comprehensive utilisation of intelligent spend engines and uninterrupted B2B ordering. The result will help businesses achieve less dependency on single suppliers with higher bargaining powers.

The challenge for companies is to improve operational efficiency and make their supply chains more resilient without losing their competitive advantages.

Procurement managers must utilize the features of a procure-to-pay software along with its invoice management systems to make the most of shifting market dynamics and to identify savings opportunities.

5. Need for Solid Risk Management Plan to Ensure Business Continuity

Supply shortages revealed the underlying costs and risks of the global and interconnected supply chain during the pandemic. Ensuring business continuity in the post-pandemic world means reimagining your entire risk management plan. Without a supplier management solution, companies must manage their supplier risk by designing contingencies for catastrophic events such as the global pandemic that can leave entire countries unaccessible.

Pandemic has left businesses to opt for experimentation which means heavy costs. However, companies tended to adopt risk-based frameworks which rely on quality assurance certifications to ensure robust and continuous supply chains.

Owing to drastic fluctuations in demand for raw materials, international outsourcing has become costly. For this reason, businesses have invested in backward integration or they have started to rely on domestically sourced materials.

For example, some companies are going for a “China-plus-one” strategy, diversifying their supplier base by spreading production in one more Asian country along with China.

6. Flexible, Solid Policy and Processes

The increased demand pressures on consumer product companies such as the producers of toilet tissue rolls and hand sanitizers coupled with the reduced supply from the paper and chemical suppliers, earlier in the pandemic revealed the inflexibility of production processes. The inefficiencies in indirect procurement required flexible policies to meet the fluctuations in the demand from internal stakeholders. Current methods could not keep up with the varying volume demanded, just as producers failed to shift from one resource material to another.

Before the pandemic, volume stability enabled the supply chain to deliver effectively at the lowest possible costs while maintaining quality. But the spikes in the demanded volume and rapid shifts in products demanded exposed the underlying inefficiency of the supply chain.

For example, during the pandemic, the demand for surgical masks sky-rocketed with an increased markup of up to 10 times. The disrupted supply chain caused the surge in prices as sourcing raw materials even from different parts of the world became difficult following the regional shutdowns. Manufacturers with flexible processes can opt for automation alongside human intuition which may render reduced lead times. Furthermore, modification of production lines to meet the demands of internal stakeholders can result in favorable outcomes

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